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Wharton 4/1-2

Belated notes from last weekend - Marketing and Finance.

MarketingDiscussed the role of being a pioneer in the marketplace. Turns out, the average leader's advantage does exist but is not that large - the second entrant into the market ends up getting 70% of the pioneer's market share (i.e., if the pioneer has 40% of the total market, the second entrant has 28%). The later entrants gain even less, relative to the leader, but the size of the market tends to increase for successful products, compensating. Still, this is only "on average" and in many cases the leader falls by the wayside. Even having the product become known by your brand's name might not help all that much (Aspirin is Bayer's trademark, not Tylenol or Advil); Hoover, Xerox, Rollerblades are all not doing so great, despite the householding of the names. Sidenote: Wharton, as I learnt during that class, was the first business school in the world, with money donated by the Philadelphia financier Joseph Wharton in the late 1880s.We also discussed why most consumer goods companies have multiple unconnected brands, rather than promote one super-brand - the company name. Examples: Victoria's Secret, Bath & Body Works, Express,Limited, White Barn Candle Co. are all owned by Limited Brands, even though it would seem that they compete against each other; Armani, Helena Rubenstein, Garnier, Lancome, Maybelline, Vichy, L'Oreal, are all owned by L'Oreal.

Finance"The whole finance profession is a search for the Master Beta"The professor was explaining the Modern Portfolio Theory (the efficient frontier, etc.), but the class discussion centered exclusively on whether this approach was practical and how it meshed with the proliferation of mutual funds, hedge funds and investment management companies. That's the same questions I had when I was reading about it a few years ago, but never dared to ask as directly. The conclusion? Index funds should be best for most of your investments, while stock (and other asset) picking could be useful in specialized circumstances, such as tax games, presence of insider info, excitement from "winning", etc. Plus, no matter what the theory says, the markets are not that efficient just yet - according to the efficient market theory, you should not bother to pick up a $10 bill lying in front of you on the pavement (if it was really lying there, someone would have already efficiently picked it up...)

My finance prof is great - funny, articulate, knows the material inside and out. And yet, I have a hard time concentrating in his class. The pace is a bit too slow at first - he is trying to accomodate people with no finance background whatsoever, but by the time it gets more difficult (getting to the Nobel-winning Black-Scholes options pricing formula, for example), my mind had wondered so much that I find it hard to catch up. The only consolution is that I am not alone - most people enjoy the class, but find it hard to follow either in the beginning (for the finance-knowledgeable types), or in the end (for the finance newbies). I guess that's the price we have to pay for having no prerequisites for difficult classes like this one.